A tied loan arm can be a major source of profit for car manufacturers. After all, keeping that card in the house instead of giving it to a third party allows some of that interest-generated income to roll on a recurring monthly basis. Why else did most of us, for many years during GMAC’s heyday, refer to General Motors as a finance company that accidentally sold cars?
After several years of coexisting with Santander to offer financing to its clients, Stellantis bought F1 Holdings Corp., a company that is the parent company of the Texas-based First Investors Financial Services Group. Now that they’ve spent $ 285 million on this all-cash transaction, Stellantis is no longer the only major automaker in America without a captive financial arm.
For those of you who have fallen asleep on a budget, we’ll provide some background. A captive finance company is a wholly owned subsidiary that finances retail purchases from the parent company. These groups can range from medium-sized entities to giant enterprises (GMAC would have been the latter when operating as gangbusters).
“With the acquisition of First Investors, we will rapidly develop a captive financial arm in the United States, offering a full range of products, for the benefit of our customers, our resellers, our brands and our shareholders,” said Philippe De Rovira. , Chief Affiliates Officer for Sales Finance, Used Cars, Parts and Service and Retail Network (and probably the owner of the longest business card in the world if that job title is any indication).
Until this agreement, customers who chose to sign a note in the sales office of a Stellantis dealership would agree to make payments to Chrysler Capital. That deal was a financial services operation set up by Santander Consumer USA Holdings Inc. and Chrysler Group LLC nearly a decade ago before the American automaker completed its merger with Fiat in 2014.
Captive financing is a weird and wonderful part of the auto business. Using GMAC as an example, these types of companies can spread their tentacles into parts of finance where they might not be expected. For example, while GMAC made sense to enter the insurance game 20 years after its founding in 1919 (why not insure the cars they sell?), The 1985 decision to enter the mortgage market was fraught with potential pitfalls despite the allure. of huge profits. As we all know, the house of cards collapsed dramatically during bankruptcy in 2009 and GMAC transformed into Ally Financial the following year. It is worth noting that Ally went back to bed with mortgages about five years ago.
No such plans have been announced for Stellantis’ new venture, though it must be assumed that it is certainly not out of the question if the right opportunity presents itself. After all, Ally’s net profit was over $ 1.7 billion in 2019.
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